By TODD BISHOP, P-I REPORTER

Published 10:00 pm, Sunday, July 16, 2006

Think of it as Antitrust 2.0 -- a new generation of potential legal problems for Microsoft Corp. But this time, the company says it wants to resolve them in advance.

Microsoft has faced past legal challenges for incorporating programs into Windows to browse the Web and play digital media. Now, as the company prepares the first full Windows upgrade in five years, rivals and regulators are focusing on new areas of the PC operating system.

European Competition Commissioner Neelie Kroes, announcing a $357 million antitrust fine against Microsoft last week, reiterated that the commission is also looking at Windows Vista, the new version in development.

Kroes told reporters that she expects Microsoft to apply "the general principle" of the commission's 2004 ruling to future Windows versions. That ruling was meant to keep Microsoft from using the dominance of Windows to give itself an unfair edge in other areas of the software market.

Microsoft's focus in Vista "has to be avoiding those problems that we are facing now," Kroes said.

Microsoft -- which has paid out more than $6.8 billion in antitrust settlements and penalties -- says it has learned from its past disputes and is trying to address concerns before Windows Vista's release.

"It is absolutely our goal to bring to market a product that passes regulatory scrutiny in advance" of its release, said Brad Smith, Microsoft's general counsel.

In behind-the-scenes letters, Kroes and Microsoft Chief Executive Steve Ballmer have discussed the European Commission's concerns in areas including Internet search, document presentation and security. But the agency hasn't taken formal action over Vista.

"Obviously we hope that it won't be necessary -- that they'll take our concerns on board and avoid the kind of problems that they've had and are still having with the current antitrust case," said Jonathan Todd, a spokesman for the commission.

The company says it has already changed some aspects of Windows Vista as a result of the commission's concerns, and it's awaiting responses on other proposed changes. Among the issues under discussion:

The incorporation into Vista of a Microsoft technology similar to some aspects of Adobe Systems' Portable Document Format, or PDF. The issue reflects a practice that has caused the company problems in the past -- building into Windows the kinds of programs that are available on a stand-alone basis from others.

Ballmer's response offered four proposals for resolving the commission's concerns about the issue. They included an offer to remove Microsoft's similar program, known as XPS, from all or some Windows Vista versions to be sold in Europe.

Security-related elements of Windows Vista. Microsoft is coming out with its own software to protect against viruses and other threats, and it's offering anti-spyware software, specifically, free with Windows. The commission wants to make sure the company doesn't use Vista to unfairly promote or favor its own products over those from other companies, such as Symantec or McAfee.

The commission's concerns include Windows Security Center, a central program for monitoring the status of security protections. In response, Microsoft says it made changes to make sure the program is neutral in the way it presents and works with security software from Microsoft and other companies. The company says it doesn't want to see Windows Security Center removed from Vista, a possibility Kroes raised.

Search functions in Microsoft's Internet Explorer 7, which will be included in Windows Vista and also available as an update for users of the current Windows XP. Google has publicly raised concerns that the browser's search box unfairly favors Microsoft's MSN Search by using it as the initial default search provider in many cases.

Kroes also raised that issue. Microsoft pointed out in response that PC manufacturers will have the option of making other search providers the default, as in a deal between Dell and Google. Microsoft outlined the process for PC users to change the default, and it noted that rival search vendors can offer their own versions of Internet Explorer that default to their services.

Kroes also has raised concerns about "the possible failure to disclose all technical information necessary for Vista to interoperate with competing products," said Todd, the commission spokesman.

That's an extension of the issue at the heart of last week's $357 million fine. The commission found that Microsoft had failed to fully and accurately disclose technical information for competing server companies to make their programs work well with current Windows versions. A trustee deemed the company's initial technical documents inadequate.

Microsoft says the commission itself originally wasn't clear about what it wanted.

The company expects to meet a deadline this month for submitting a last batch of documents that meet the trustee's requirements.

Leaders of Microsoft's technical documentation efforts have said they will also continue to produce the same level of information for new versions of Windows and Windows Server.

Kroes' initial letter was sent March 20, and Ballmer responded April 11 and May 11. The commission is studying the responses, Todd said.

In the meantime, the clock is ticking toward Windows Vista's release, reducing the opportunity to make changes before the program is finished.

Speaking to reporters last week, Kroes said Microsoft isn't releasing Vista until next year. But under its current schedule, Microsoft is actually due to issue versions for businesses later this year, before the retail release in January.

Smith said Microsoft hopes to receive the commission's feedback on its proposals soon. "What we'd like," he said, "is clarity in advance."